Coal, oil and gas companies to pay less in royalties after Interior decision

The Interior Department informed coal, oil and gas companies this week they do not need to comply with a new federal accounting system that would have compelled them to pay millions of dollars in additional royalties.

The Office of Natural Resources Revenue’s new method of calculating royalties for minerals extracted on federal land — which was finalized last July and took effect Jan. 1 — was aimed at preventing firms from underpaying what they owe by selling coal to subsidiaries at an artificially low price. But energy firms, some of whom challenged the new rule in court, called the requirements confusing, complicated and onerous and pressed for a delay.

“This rule would have had immediate detrimental effects to American energy producers and the hard-working Montanans and workers across the country they support,” said Sen. Steve Daines (R-Mont.), who asked the administration last month to stay the rule.

Colin Marshal, president and chief executive of Cloud Peak Energy, called the change in accounting rules “among the most egregious” of the “punitive regulations” on coal the Obama administration had adopted, and welcomed its suspension.

Companies were set to file their first reports under the new rule Tuesday.

Lawmakers in both parties have questioned whether the current method of royalty collection for coal mined in the Powder River Basin, which encompasses parts of Wyoming and Montana, accurately compensates taxpayers. Firms are required to pay a royalty of 12.5 percent on the minerals they extract from federal land when they are first sold, but many coal companies initially sell to affiliates at the same price per ton that they pay the federal government for extracting it.

By doing that, they avoid paying royalties on the higher price the affiliated companies receive on the open market. According to the U.S. Energy Information Agency, 42 percent of coal transactions in Wyoming took place between affiliated companies.

Interior spokeswoman Heather Swift said in an email that her department delayed the rule’s effective date “to allow the administration time to conduct a detailed review of the rule and the compliance burden it puts on job creators. The Department will make a definitive decision in the future.”

Environmentalists and some watchdog groups blasted the move, which first came in the form of a letter sent Wednesday to mining, oil and gas firms. Theo Spencer, a senior policy advocate at the Natural Resources Defense Council, said agencies are legally obligated to provide notice and take public comments before staying a rule, and that they cannot unilaterally delay a rule that is in effect.

“It’s just a ham-fisted effort to try to cheat taxpayers,” he said. “We and others are exploring potential litigation as we feel strongly that this was a miscarriage of justice, and an example of the administration picking which laws it wants to follow.”

President Trump, who signed an executive order Friday that establishes task forces in every agency to identify regulations that can be eliminated or simplified, has repeatedly emphasized the importance of undoing Obama-era rules that constrain coal extraction.

“We’re working very hard to roll back the regulatory burden so that coal miners, factory workers, small-business owners and so many others can grow their businesses and thrive,” he told reporters in the Oval Office Friday.